Letter to the Editor of The Australian Financial Review

1 December 2011

In response to an article published in The Australian Financial Review today the Chief Executive Officer of the AOFM has sent the following letter to the Editor of The Australian Financial Review:

Your article “Labor dodges blowout in debt ceiling” looks like an attempt to sensationalise standard operating procedure at the AOFM. While not warranting merit, it does warrant a response given that it contains errors, is misleading and is offensive and irresponsible in its inference.

The AOFM makes operational decisions about issuance programs independently of Government; a long standing practice. Therefore, there is not, nor has there been, any direction or attempted influence from Government over AOFM operational decisions.

Furthermore, we more than anyone understand the importance to financial markets of transparency and consistency in the way the AOFM operates. The implication that somehow we have been opportunistic in developing our long term bond program is simply not based in fact. Our website demonstrates a history of advance notice to markets as to our intentions. The website also gives a detailed history of our pattern of issuance. While longer bonds may enjoy a greater increase in price than do shorter bonds for a given fall in interest rates, the AOFM sets its issuance with regards to objectives such as building liquidity, meeting market demand and balancing the cost of issuance with variability in interest costs.

The claim that the AOFM is attempting to circumvent the legislated debt cap by targeting particular parts of the yield curve is also not based in fact and is quite frankly absurd. International conditions, together with Australia’s strong credit status, combine to offer strong demand and low yields on government bonds. When a new bond line is opened, we set the coupon at close to par based on prevailing rates and in fact we recently launched a new long bond line at a discount – not a premium. As all yields have now fallen due to market outcomes below their coupon rates, no bond currently trades at a discount to its face value. Therefore, issuance at a premium occurs by implication – not by objective.

The AOFM has always been open in the conduct of its operations. We have also been freely available to clarify technical issues and advise of the facts when requested of us. It is a pity that wasn’t considered prior to the article in question going to print.

Rob Nicholl
Chief Executive Officer

Last updated: 21 March 2014